I was having a conversation with a co-worker the other day about malpractice reform, and it made me finally put together all my thoughts on the subject into a cogent argument. So I thought I’d share.
A while back, I was visited out in Seattle by a good buddy from college who works as an analyst in New York, studying the insurance industry. He told me the big challenge for insurers was the fundamental unpredictability of jury awards. If there was a “cap” on damages, a maximum amount that one could sue for (which is what President Bush proposes), then insurers could take that into account and adjust accordingly.
What happens, though, as we saw with the TWA Flight 800 center-fuel-tank issue, is that a company can then compare the cost of a potential lawsuit with the cost of repairing a defect, and essentially decide whether making people safe is cost-effective.
Unlimited jury awards inject some unpredictability into the system. This, in turn gives companies an incentive to err on the side of consumer safety, which is a good thing.
One solution, of course, is greater government oversight of various industries, substituting the threat of lawsuits with the threat of fines or jailtime. But seeing how President Bush chose to gut the budget of the Securities and Exchange Commission in the wake of Enron and related scandals (choosing to put that money in the pockets of many of the offenders), I don’t have much faith in that being a viable option.
More on this to come, including some links and facts. I just thought we could all use a bit of a diversion from the horse race.
Now back to your regularly-scheduled election.
Now Playing: Episode 350
Al Gore’s plan for energy independence, Obama’s trip overseas, and finally, the bailout of Fannie and Freddie.
Links Mentioned: Al Gore’s plan … articles on carbon-neutral communities in The New Yorker and the NYT.
